1988 (5) TMI 61 - AT - Income Tax

Summary

Issues:
1. Validity of the rectification order of the ITO.
2. Whether the original order of the ITO merged into the Commissioner's order under section 264.
3. Whether the rectification order is invalid due to the merger of the ITO's order with the appellate order of the Commissioner.

Detailed Analysis:
1. The judgment revolves around the validity of the rectification order of the ITO. The ITO had initially granted a deduction under section 80M to the assessee but later sought to rectify this order by reducing the deduction granted under section 80M due to an amendment by section 80AA. The Commissioner had upheld this rectification. The assessee challenged this action on various grounds, including the argument that the original order of the ITO merged into the Commissioner's order under section 264, and therefore, could not be rectified. The Departmental representative argued that the rectification was necessary due to the retrospective effect of section 80AA. The Tribunal held that the original order of the ITO did not merge into the Commissioner's order under section 264, allowing the rectification to stand.

2. The issue of whether the original order of the ITO merged into the Commissioner's order under section 264 was also raised. The assessee contended that the original order was superseded by a subsequent order and, therefore, could not be rectified. The Tribunal differentiated between the powers of the Commissioner under section 264 and the appellate powers of the Commissioner, emphasizing that under section 264, the Commissioner can only pass orders on matters not covered under section 263. The Tribunal held that the original order of the ITO did not merge into the Commissioner's order under section 264, allowing the rectification to be valid.

3. Another aspect considered was whether the rectification order was invalid due to the merger of the ITO's order with the appellate order of the Commissioner. The Tribunal noted that the appellate order of the Commissioner was based on a subsequent order of the ITO, not the original order sought to be rectified. The Tribunal interpreted the Commissioner's observations as procedural guidance rather than a judgment on the merits of the case. The Tribunal found the effect of the amendment under section 80AA to be clear and beyond dispute, allowing the ITO to rectify the original order. Consequently, the Tribunal dismissed the appeal, upholding the validity of the rectification order by the ITO.